CEO of Chinese conglomerate Fosun warns against splashing out on cheap foreign assets
It is “very dangerous” for Chinese enterprises to buy overseas assets or equities simply because they are cheap, said Liang Xinjun, vice-president and chief executive of conglomerate Fosun International.
“As for us, we only focus on assets that can benefit from the China momentum. That means buying overseas assets with reasonable price and bringing them back and promote their growth in China ,” Liang said at Macquarie’s annual Greater China Conference in Hong Kong on Thursday.
“In the next five to 10 years, both the growth and the major markets for global consumption will be from emerging markets, including China,” said the co-founder of Fosun, adding the country’s momentum comes from what he described as business to family (B2F), such as health care and entertainment sectors.
Corporate leverage in China has been very high while government leverage may rise because of potential losses as a result of state owned enterprises (SOE) reforms and the local governments’ ongoing struggles to tackle overcapacity problems, but household leverage remains low, Liang said.
The country with the world’s largest population provides investors the biggest middle-class base and millennials, as well as the largest mobile internet market, he said.
“If we cannot immediately promote the growth of a foreign acquisition in China, such as in six months, we don’t do that [transaction],” Liang said, adding the key lies in how domestic enterprises promote the assets they acquire in China.
In the past three years, Fosun has upgraded its asset allocation, with 75 per cent of its 400 billion yuan (HK$477.5 billion) assets invested in “health, happiness, wealth” sectors.
“Today about 95 per cent of our net profit comes from these three sectors,” Liang said.
Fosun International has been active in overseas mergers and acquisitions. It now oversees six insurance companies based in Europe, the United States, Hong Kong and mainland China.
It also controls France-based global resort operator Club Med and Canada’s Cirque du Soleil circus troupe.
“If you say today it is a bear market, I say it’s a good time to buy,” Liang said.
It is a bear market in Hong Kong these days, he said, but investors with a bit of research can find promising “unicorns”, such as the US-listed Focus Media, whose valuation has jumped from US$350 million to US$2.7 billion.
“This stock is very, very cheap in Hong Kong . This is the cheapest market with highest liquidity in the world,” Liang said.
Seven to eight years later, the biggest opportunities would shift to South and Southeast Asia, which together have a population of 2 billion with an average age of 29 years, Liang said. Although there are difficulties in expanding in Southeast Asia, investors should start now, Liang said.